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Countervailing Calamity: How to Stop the Global Subsidies Race

The world is awash in trade-distorting subsidies. Since the
financial crisis of 2008, governments have adopted massive
“stimulus” packages that have included taxpayer subsidies for
industries, such as agriculture, alternative energy, and
automobiles, which have distorted global markets, bred cronyism,
and undermined free trade. These policies encouraged copycat
subsidization, which spawned an increase in litigation at the World
Trade Organization and led to the frequent imposition of
protectionist duties via national countervailing duty (CVD)
laws.

Trade reform is badly needed. Unfortunately, the U.S. government
has little credibility on this issue: it is one of the world’s
largest subsidizers, funneling billions of dollars annually to
chosen industries, causing economic uncertainty, and creating
breeding grounds for corruption. Yet, ironically, with 59 currently
active or pending CVD measures affecting over $11 billion of
imports, the U.S. government is also one of the most frequent users
of anti-subsidy disciplines.

However, the CVD law and its application are rife with problems
because the Commerce Department has too much discretion
administering the law, which exposes subsidy determinations to
subjective and opaque decisionmaking. The CVD law is punitive
instead of remedial, making victims of U.S. consumers and consuming
industries, aggravating U.S. trading partners, and exposing U.S.
businesses to retaliation against their exports and intellectual
property.

By curtailing federal subsidies to favored industries and by
reforming CVD procedures to ensure that they serve the rule of
international trade law—rather than protectionist
objectives— the U.S. government can reduce market
distortions, restore some faith in free markets, and lead national
and international subsidy reform initiatives.

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Policy Analysis

Scott Lincicome is an international trade attorney at White &
Case and blogs on international trade issues at:http://lincicome.blogspot.com. The views expressed
are his own. Special thanks to Jonathan Black for his invaluable
research assistance.